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Thursday, November 15, 2012

Downsizing For-Profit Colleges

For-profit college giant Career
Education Corporation (CEC) recently announced that it will close 23 of its 90
campuses, according to the Bay Citizen.
The move comes in response to a $33 million decline in revenue and 23% drop in
new student enrollment this quarter and will result in the loss of 900 jobs. Other
for-profit colleges have also announced downsizing in response to declining
revenues, including University of Phoenix and Corinthian.

CEC has not yet stated which of its 6
California campuses will be closed. CEC owns the California Culinary Academy in
San Francisco and the Cordon Rouge culinary schools in Southern California, as
well as the International Academy of Design and Technology in Sacramento.

According to Kevin Kinser, professor
of higher education policy at the University at Albany, SUNY, the wave of
closures and downsizing at for-profit colleges is due in part to tighter
regulation of the for-profit education sector. For example the U.S. Department
of Education imposed a ban on incentive pay for recruiters last year. This has
undermined these colleges’ business model which is based on admitting as many
students as possible, charging them exorbitant tuition and sidling them with massive
student debt.

Additionally, many for-profit
colleges, including CEC, have recently gotten in trouble with accreditors for
inflating job placement rates for their graduates. When CEC released its new accurate
rates, most of its campuses had rates below the 65% minimum required by the
Accrediting Council for Independent Colleges and Schools. Once a school loses
its accreditation, its diplomas become less credible and students are less
likely to enroll.

Another factor is that some schools are
losing access to state or federal Grants because too many of their students are
defaulting on their loans. Under a new law in California, for example, a
school’s loan default rate must be 15.5% or lower. As a result of the new law,
the International Academy of Design & Technology in Sacramento lost eligibility for Cal Grants this fall because 20% of
student borrowers were defaulting. The Academy of Arts College, in San
Francisco, also lost Cal Grant eligibility this year. There were 154 institutions [PDF] (mostly for-profit) that were booted
from the program this fall. This has likely contributed to the declining
enrollment at these schools since few students can afford their expensive
tuition without grants and loans.

None of this should be considered a
sign that the for-profit college industry is going away. For-profit colleges
are a $25 billion a year industry, with an average profit margin of 19.7%,
according to the WSWS.
Their CEOs earned an average of $7 million last year. Even with the new laws,
it will continue to be a highly profitable sector. What we are actually
witnessing here is their attempt to maximize profits in the face of a few
unfavorable lawsuits and legislative changes.